Land value tax in Australia?

Monday 9 September 2024

Anthony J Cordato
Cordato Partners Lawyers, Sydney
ajc@businesslawyer.com.au

Land value tax is a wealth tax payable by landowners in Australia.

It is one of three forms of taxation payable by real estate investors in Australia. The other two forms are transfer duty (also known as stamp duty), payable on the purchase of real estate, and capital gains tax, payable on the sale of real estate.

This article examines land value tax (commonly known as land tax), only.

What is land tax?

Land tax is a state tax, which means that each state and territory in Australia has their own laws for the tax and, most importantly, the land value thresholds and rates of tax payable.

The Land Tax Acts of the Australian states and territories contain the following:

  • Land tax is payable by the owner on the taxable value of all land owned in the state. Land held outside of the state is not included in the land tax assessment issued by the state.
  • Land tax is payable if the taxable value is above the tax threshold. The rate increases according to high land value. The rates are up to 2.67 per cent per year.
  • Land is exempt from land tax if it is used as a principal place of residence, or for primary production, or for a charitable purpose such as education, hospital, aged care or low-cost accommodation.
  • The ‘taxable value’ is the unimproved value or site value of the land. The phrases ‘unimproved value of land’ or ‘site value’ mean the land value without regard to improvements made.
  • In some states, taxable value is the latest land valuation. In other states, the taxable value is the average of the current and select past year values.
  • Land tax is charged annually on land owned as at a defined time and date. The ‘taxing date’ is midnight on 31 December (New South Wales and Victoria) or on 30 June (Queensland, Western Australia, South Australia and Tasmania), and applies to the following year, or in the advance corporate tax (ACT) to the following quarters.
  • Foreign persons and/or absentee owners must pay surcharge land tax in addition to land tax payable if the land is residential land. The rate varies between 0.75 per cent and four per cent per year.
  • Surcharge land tax is payable in all states except in Queensland, where surcharge land tax is payable on all land, and in South Australia and Western Australia, where no surcharge land tax is levied at all.
  • Land tax is levied according to ownership across more than one parcel of real estate. Land holdings of individuals who own multiple properties are aggregated for land tax purposes. In most states, related companies are grouped and their land holdings are aggregated to determine the amount of land tax payable. Ownership can be direct or through a trust.
  • Land tax can be passed on to tenants under some leases as an outgoing. This applies to commercial leases. Land tax cannot be passed on under residential and retail leases.

How is land tax levied?

Land tax is levied on a wide range of properties:

  • vacant land, including rural land;
  • land where a house, residential unit or flat has been built;
  • a holiday home;
  • an investment property or properties;
  • company title units;
  • residential, commercial or industrial units, including car spaces;
  • commercial properties, including factories, shops and warehouses; and
  • land leased from state or local government.

Land is valued by the Valuer General at market value to determine the unimproved land value or site value of the land for land tax purposes.

Land value does not include the value of buildings or structural improvements or the legal effect of restrictions such as easements. But it includes works such as draining, excavating, filling, clearing and retaining walls. For consistency, land values reflect the property market as at the taxing date in the valuing year.

As a rule of thumb, the ratio between land value and market value for an apartment is in the range of ten to 30 per cent, and for a house is in the range of 40 to 60 per cent. So, if an apartment is valued at AU$900,000, the land value component is between AU$90,000 and AU$270,000 – which is the land value upon which land tax is levied.

In some states and territories, other taxes are added to land tax assessments. In Western Australia, a metropolitan improvement tax of 1.4 per cent is added. In Victoria, a vacant residential land tax (known as a ‘ghost tax’) is imposed at one per cent (increasing to two per cent in year two, then three per cent in year three) of a vacant property’s capital improved value. This tax applies to Australian resident owners of holiday houses unless occupied by owners or their relatives for at least four weeks a year.

In some states and territories, higher land tax rates are payable for land held in a trust. In others, there may be a lower, or no, tax threshold. In New South Wales, no tax threshold applies to land held in a special trust, which means a discretionary (or family) trust. In Victoria, land held in a fixed, discretionary or unit trust is generally assessed at trust surcharge rates. In Queensland and in South Australia, a lower land tax threshold applies to land held in a trust.